Does Financing Your Vehicle Affect Your Auto Insurance Rate?
Few buyers can purchase a new vehicle without financing it. The good news is that financing your vehicle does not directly affect your auto insurance rate, meaning that you are not penalized for taking out an auto loan instead of buying the car outright.
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However, you may end up paying a higher premium than someone who has not financed their vehicle. If you make payments on your vehicle, your lender requires you to have comprehensive and collision coverage on top of the state minimum requirements. Plus there may be postage to the lender to communicate proof of coverage to them.
Why Lenders Require Full Auto Insurance Coverage
After you sign all those papers and get the keys to your new vehicle, you think of it as yours. However, your lender has a different perspective. As far as they’re concerned, they paid for the vehicle. Therefore, it’s in their best interest to ensure that if the car is totaled in an accident, they won’t suffer a loss.
If you get into an accident with only state minimum coverage, your auto insurance policy covers damages to the other driver’s vehicle. However, your vehicle wouldn’t be covered by your policy. This means that if your car is totaled (the cost to repair the vehicle is greater than the vehicle’s value), your lender would be out the money.
To protect their investment, lenders require that you have comprehensive and collision coverage. This ensures that if your vehicle is damaged, your auto insurance company will pay for repairs, or if it’s totaled, the lender would receive the money needed to pay off the loan.
What Happens If Your Auto Insurance Coverage Lapses
Letting your auto insurance coverage lapse is never a good idea. Not only is it illegal, but if you get into an accident with lapsed coverage, you could end up paying thousands of dollars out of your own pocket to cover damages to your vehicle, the vehicle you hit and any injuries that resulted. Once you get coverage again, you’ll probably pay a higher premium.
When you have an auto loan, coverage lapses cause an even bigger hassle. Once again, your lender wants to make sure that your vehicle is in good condition and can be returned to pre-loss condition if it’s in an accident. If you make changes to your auto insurance coverage, such as if you add or drop optional coverage or raise or lower your policy limits, your auto insurance carrier notifies your lender.
Your lender is also notified if you skip your auto insurance payment. If that happens, they can place a third-party auto insurance policy on your vehicle. Worst case scenario, they can legally take back your vehicle.
How Nevada Insurance Enrollment Can Help
If you have a new vehicle payment, it can be intimidating to think about paying a higher premium for auto insurance. An auto insurance agent at Nevada Insurance Enrollment can help you understand what your lender requires, what discounts you qualify for and which auto insurance company offers the best coverage at the best price for you.
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DISCLAIMER: It is important to note that the information contained herein is made general for the purpose of explanation. You should consult your policy for exclusions or other language that may alter your policy.
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